Demands pile up for £7bn of debt sold off by banks

Demands pile up for £7bn of debt sold off by banks

Increasing numbers of people who have mortgage shortfalls and other debts from as far back as the 1990s are now being threatened with court action. Last year UK banks sold off a record £7bn in unpaid consumer debts to collection agencies, which bought the liabilities for a pittance and have since been chasing them up.

As a result, Citizens Advice says that in the past few months a growing number of worried householders have been contacting its bureaus after being told to pay back debts ranging from tens to thousands of pounds which their lenders had previously let slide.

'We are seeing people who lost their homes in the 1990s who are only now being pursued for that mortgage debt,' said Peter Tutton, national debt policy officer at Citizens Advice.

Debt charities the National Debtline and the Consumer Credit Counselling Service have also both reported a sharp increase in the number of people contacting them after being pursued for debts from years ago. The number of people contacting the National Debtline about old debts has doubled in the first quarter of this year from two years ago.

'There are surprisingly large numbers of these debts which have been languishing for some time,' said a CCCS spokesman. 'We think this increase in people being chased is because of the huge growth in debt purchase.'

Another reason people are suddenly being chased for mortgage debts from the mid-1990s might also be that many of them are about to become.....continued below

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'statute barred', according to the CCCS. When a debt becomes statute-barred it means that the lender has no right to pursue it any longer, as long as there has been no payment toward or acknowledgment of that debt by the debtor in a legally defined period of time.

In the case of an unsecured debt - a loan or a credit card - the lender, or the collection agency that has bought the debt, has six years to pursue the debt from the last time a payment was made or, crucially, from the last time a debtor acknowledged that debt. In the case of a mortgage shortfall, the creditor has 12 years, or less in some cases.

'Creditors are realising they have to react if they don't want to fall into that statute-barred period,' says the CCCS spokesman. 'They also realise that people who ran up debts in the 1990s may now be sitting on housing wealth since property prices have gone up so much in the last few years.'

Citizens Advice cites the case of a 56-year-old disabled divorced woman who received a letter from a debt collection agency about a mortgage shortfall of just over £15,300 on a house that was repossessed in 1990. The collection company told Citizens Advice it had been unable to trace the client's former husband, who had not paid the interest on the mortgage, so were looking to her to pay the outstanding amount and interest, despite the debt being outside the 12-year time limit. She told them she was on income support and had no means of paying, but they followed up their initial letter with forms to complete. This frightened her so much that she collapsed and was taken to hospital.

If a debt is statute-barred, the lender or agency should not be able to pursue it through the courts, but many threaten to anyway, says Tutton. This has added to the confusion, with debtors contacting debt advice services about whether the debt can be legally enforced.